CipherTrace's Monero Tracking Tool Has Not Been Proven Effective, Researcher Says

CipherTrace's Monero Tracking Tool Has Not Been Proven Effective, Researcher Says

September 8, 2020

Key Takeaways

  • Blockchain anaylsis company CipherTrace has released a tool for use in tracing Monero transactions.
  • The tool was developed for use by the DHS, who will use it to investigate crypto-related thefts and crime.
  • The Monero community doubts the effectiveness of the tool.

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CipherTrace has announced a Monero tracing tool, which can allegedly identify the users behind private transactions. Monero researchers, however, doubt that the tool is truly effective.

Some Monero Transactions Are Traceable

CipherTrace’s tool is reportedly capable of tracing Monero transactions simply by “visualiz[ing] Monero transaction flows.”

Based on further comments from CipherTrace CEO Dave Jensen, the tool is capable of narrowing down the identities of Monero users based on decoy elimination. The tool scores transaction inputs and outputs and assigns “risk levels” to different addresses, allowing investigators to reach a conclusion about users’ likely identities.

The tracking tool was developed under the direction of the U.S. Department of Homeland Security (DHS). It is meant to be used in criminal investigations concerning thefts of XMR funds and illegal activities that involve privacy-centric transactions.

CipherTrace notes that Monero’s privacy features make the coin very appealing to criminals.

Monero is supported by 45% of darknet markets, making it the second most widely accepted coin after Bitcoin, according to CipherTrace’s own data.

Not as Effective as Claimed

Much of the Monero community doubts that the tool is as effective as CipherTrace claims.

Monero researcher Sarang Noether told Crypto Briefing that, in his opinion, CipherTrace has not provided “substantial details” that prove the effectiveness or scope of the tool:

“Without such details or evidence, it is not possible to assess what the tool does, or how well it does it. As a mathematician and cryptographer, I prefer to base my technical conclusions on data, not on press releases or unsubstantiated claims.”

Ultimately, it does not appear that CipherTrace is capable of deriving user identities from basic wallet addresses and transaction data—certainly not to the same extent that it can identify Bitcoin users.

Instead, it seems that CipherTrace’s tool depends greatly on off-chain data from exchanges and other sources. Users who keep their personal data separate from their Monero address can expect reasonable privacy.

That said, governments and regulators are free to use the tool and reach their own conclusions. CipherTrace says that the tool has already been used in several investigations.

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